Macron reforms will boost eurozone, says economist poll
The eurozone’s burgeoning recovery was one of the economic stories of 2017 — and analysts in the region have told the Financial Times they expect more of the same in the year ahead. An FT poll of 34 economists, conducted this month, found that most think the region’s growth will be supported by President Emmanuel Macron’s reforms to France’s labour market and possible pro-EU policies from a new “grand coalition” German government, as well as helpful global conditions.
On average, 31 respondents expect the eurozone’s economy to expand by 2.3 per cent next year, with a substantial minority indicating potential for an even stronger expansion. That compares with growth of 2.4 per cent this year, according to the European Central Bank’s latest forecast this month. Italy’s election in March is one of the biggest risks, the poll found. An overwhelming majority also think 2018 will be the year when the ECB ends its quantitative easing programme of mass bond buying. A significant minority of 34 per cent think growth will be strong enough for the central bank to end QE —which is about to enter its fourth year — in September.
The expectation of an end to QE comes even though inflation is expected to remain weak, at 1.5 per cent — short of the central bank’s target of close to 2 per cent.
Alberto Gallo, a portfolio manager and head of macro strategy at Algebris Investments, a fund, said: “The recovery will accelerate in 2018 on the combination of political stability, fiscal stimulus and stimulative monetary policy.” Many forecasters were surprised this year by the strength of the eurozone’s recovery after years of weak growth and high unemployment. Eurozone growth was just 1.7 per cent in 2016.
Germany heads into the new year without a government after elections in September but with Chancellor Angela Merkel’s Christian Democrats and the centre-left Social Democrats pledged to talk about a possible renewal of their coalition. Many respondents are optimistic about the economic consequences — not least because of the SPD’s willingness to promote Mr Macron’s agenda for more eurozone economic integration.
Talks on a coalition involving the CDU and liberal Free Democrats failed. “I would see another grand coalition as a positive development,” said Jennifer McKeown, chief European economist at Capital Economics, a consultancy.
“Admittedly, the implications for businesses would be less positive than those of a coalition involving the FDP. But tax cuts for households, particularly on lower incomes, should help to support consumer spending growth within Germany. Meanwhile, a relatively open stance towards eurozone reform and fiscal integration would bode well for the stability of the region as a whole.”
Voices within Germany are more sceptical, however. “A new grand coalition would not fundamentally change its policy stance and it would also not be willing to make major steps towards more integration in the eurozone,” said Peter Bofinger, a professor at the University of Würzburg and a member of Germany’s council of economic experts.
While respondents expected political stability, a big risk to growth came from the threat of Eurosceptic parties securing victory in Italy’s elections or an escalation in tensions between North Korea and the US. Philippe Legrain, a senior visiting fellow at the London School of Economics’ European Institute, said: “The Italian elections could lead to the formation of a government hostile to euro membership that reawakens fears about the integrity of the euro and the sustainability of Italian government debt.”